The Baltic Tiger

2017

Estonia

Latvia

Lithuania

GDP per capita,
thousands €

17.5m

13.9

14.8

GDP growth %

4.9

4.5

3.8

Populations

1.3m

1.9m

2.8m

Capitals

Tallinn

Riga

Vilnius

The Baltic countries are among the fastest growing Euro-area countries and now on the verge of a 7-year record high GDP growth for 2018 and 2019. Since the 2000s, they have attracted a considerable amount of foreign investments, owing to important liberal reforms, fairly low-wage and highly skilled labour. This led to a period sharp economic growth that is still relevant today.

The considerable income gap vis-à-vis European trading partners still benefit the Baltic countries today with prices sometimes far below Western standards. Nevertheless, it is their balanced public finances and low government debt levels that brought global business confidence to record high and further strengthen prospects for domestic demand and improvements in labour markets.

This sustained and confident growth, combined with favourable financing conditions and an accelerating flow of EU structural funds, has fed major industry investments with most recent ones into machinery, building structures and infrastructure developments. For instance, the Rail Baltica project, which aims at integrating the Baltic States in the European rail network, will receive significant contribution and is expected to be implemented by 2025.

Nevertheless, potential challenges cast their shadow over those bright prospects. On the one hand, geopolitical tensions, foremost Brexit and the US-China trade row, are creating uncertainty for external demand. On the other hand, natural challenges in accelerating productivity and value-added growth, that is labour shortages and rising cost pressures, are sure to be difficult to overcome in all three Baltic States.

Theses growing challenges, however, do not undermine fact that businesses should take advantage of the key growing sectors: food processing, transport, energy, and foremost the extraordinary new technology and e-commerce developments in Estonia, Latvia, and Lithuania.

Estonia

Estonia is at the forefront of technological developments, with numerous successful companies such as Skype and TransferWise. The government of Estonia is keen on growing its digital sector and economy, and thus widely supports foreign entrepreneurs settling in Tallinn with entrepreneurially oriented policies.

The tax incentives are numerous in Estonia. For instance, there is no corporate income tax on retained and reinvested profits. Only distributed profits (corporate profits distributed; representation expenses and payments not related to business; transfer of assets) are subject to a 14-20 percent income tax.

Latvia

Latvia is ranked third by the World Economic Forum as one of Europe’s most entrepreneurial hotspot, just behind Sweden and Estonia. There are exciting opportunities for investors and entrepreneurs in the country.Corporate tax is slightly higher than in Estonia, currently standing at 20 percent, but micro-businesses have significant exemptions worth considering.

Lithuania

Lithuania has the second fastest internet connections in the World, and its capital, Vilnius, tops global ranking in data uploading speed. The company tax rate in Lithuania has an attractive rate of 15 percent with an additional 5% off for micro businesses.

Finally, it is important not to overlook cultural characteristics essential when entering the Baltic market and work environment: punctuality, efficiency and the importance of personal relationship. These are indispensable for anyone considering doing business in the region.